Making stuff out of nothing

Strategic renewal

What kind of companies dominate today’s markets? We’ve seen companies like Kodak, Nokia and Blackberry go from the top of the food (business) chain to scraps for the fishes because of fierce competition and changing consumer preferences. Their ends, however, weren’t inevitable.

Today I decided to go to class, and I was struck by an epiphany. What if I just take notes in class, do extra research about what we’re learning, stop listening to the lecturer because they move through content slower than a fly trapped in honey and transform those notes into a blog post! (Just a side note, there’ll be some direct quotes- I’m not going to put down exactly where I found them from in-text, because I forgot. Everything that’s 100% from another source will be in quotes, of course. All of the citation links will be at the bottom of the page for your further reading.) Today we learned about strategic renewal, the process by which companies can ensure that they don’t meet their ends.

Strategic renewal is the opportunity to act. Strategy is “that which relates to the long-term prospects of the company and has a critical influence on its success or failure.” Renewal is one type of change, by which something is made new. Putting these two together gives the following definition:

Strategic renewal(Strategic management terminology)

“The process, content, and outcome of refreshment or replacement of attributes of an organization that have the potential to substantially affect its long-term prospects.”

“In this sense, the process that follows is more than addition and subtraction; it is multiplication and transformation… In business, where bigger is so often mixed up with better, it bears stating that stripping away detritus does not diminish the company… If there is one trend that has demonstrated staying power over the past decade, it is the movement of strategy formulation out of corporate headquarters and into business units.”

The basic problem facing companies is condensed thusly: how will a company engage in sufficient exploitation activities to maintain its current position, while at the same time devote sufficient effort towards exploration activities to secure its position in the future?

Exploitation activities refer to maintaining control and certainty, working on existing process efficiencies and reducing uncertainty. It’s kind of like the Japanese concept “kaizen”, referring to making what’s currently practiced better. Contrast this with exploration activities, which you might put under the umbrella term “innovation”. Exploration is moving beyond whatever it is the company currently practices.

Now, realizing the right mix of exploration and exploitation activities creates what is known as an “ambidextrous organization”. That is, a company that is “efficient in its management of today’s business and also adaptable for coping with tomorrow’s changing demand.” (Wikipedia)

Further definition of ambidexterity in organizations refers to pursuing different kinds of innovation. There is discontinuous, incremental and architectural innovation; all of which have their place in making sure a company does not become obsolete. To make these concepts understandable, let’s use an example. Discontinuous, or disruptive, transformations refers to the fundamental altering of one or more aspects of a company’s strategy or organization, like with exploration activities. If we consider a company X making electric ceiling fans, this kind of innovation would be reflected in X transitioning to air-conditioning products. Incremental transformations basically refer back to the exploitation activities, with improvement of existing processes. For X, this might be improving the blade design and motor power of their electric ceiling fans. Finally, there’s architectural innovations, which involves reinforcing core concepts of the business but changing the link between core concepts and existing components of products and services. It’s kind of like a mix between incremental and discontinuous. With X, this could be moving from an electric ceiling fan to a portable fan. Both technically use the same primary components, but there are changes in dimensions, component sizes and product design. It’s a big change, but not like a swap from electric fans to air conditioning.

These different kind of changes and product improvements may be undertaken in different ways. Firms could do it sequentially, alternating exploration and exploitation in set time periods. It could also be simultaneous, with some business units responsible for exploitation and others for exploration. Another approach is for the firm to allow different parts of the company to use contextual clues and judgment to decide whether to improve incrementally improve or radically improve.

An ambidextrous organization doesn’t come without some changes in the organization outside of just deciding how to go about strategic renewal. It also involves making sure the strategy is aligned across all business units, ensuring that communication between departments is clear and and coordination is a priority. It’s like making dinner at home, but deciding to change the regular fare when you have a bunch of guests over. First, you need more people to help you cook, so you get friends and family to help. This means everyone needs to know what ingredients are being used and for what dishes they go into. Also, you as the head of the cooking team need to know if you’re going to make your traditional roast chicken a little bit better by adding new herbs and seasoning (incremental improvement), or if you’re going to swap over to fried chicken (architectural transformation), or if you’re going to do something wild like make turkey for any meal that’s not Thanksgiving (disruptive innovation).

Every company and every situation present different internal and external factors that need to be considered for strategic renewal. Thus, the golden rule for this section, as with many other business related decisions, is that every decision about strategic renewal needs to be tailored to its specific context.